Experts have warned boards that risk assessment must involve geopolitical risks “even if they seem outside of the normal scope” of normal risk considerations.

The warning comes from the PRI (Principles for Responsible Investment) network and the Sustainability Board, a think tank studying boardroom issues.

In an article for the Harvard Law School governance blog, they write: “Importantly, the risk assessment must not stop at the organisation’s edge but should include the full lifecycle of key profits or services, including suppliers.

“Geopolitical instability can significantly affect value chains and could jeopardise the viability of key suppliers, many of which are small and mid-sized enterprises in emerging markets, which may have invested less in their resilience.”

Gathering intelligence

The warning comes hard on the heels of recent news that US companies rarely disclose how they manage geopolitical risk and that boards are looking for international expertise to strengthen their strategic thinking.

Stanford Law School professor Curtis Milhaupt recent wrote that while boards may be recruiting international business experience, they are looking less at those with “government or military” knowledge areas that are “valuable training grounds for skills directly relevant to the oversight of geopolitical risk…”.

Research from Invesco Global Asset Management recently found that geopolitical risk had overtaken inflation among bankers as their chief risk factor. The survey found 83% of those polled name geopolitical tensions among their highest concerns, while 73% cite inflation.

The World Economic Forum’s own Global Risks Report 2024 found that 60% of those questioned anticipated “stormy or turbulent times” in the next decade.

A survey by Economist Impact says 42% of business leaders believe geopolitical risk is now their chief concern.

PRI and the Sustainability Board say the current risks may accelerate the emphasis on sustainability strategies. “Lenders are increasingly incorporating sustainability criteria into their lending decisions, reflecting both regulatory pressure and changing market dynamics.”